ULIPs are a great way to balance your investment with equity and debt components. ULIPs or Unit Linked Insurance Plans are life insurance cum investment options that provide you an opportunity to invest in different funds to manage your portfolio asset allocation effectively. The best way to maximize your ULIP returns is to spread your ULIP investments across various asset classes.
By investing in different funds, you can create a diversified portfolio so that in case there is a loss in a particular asset, it can be balanced by the profits earned on another asset class. Hence investing in ULIP reduces the risk of your overall investments.
ULIP plans are considered the most cost-effective approach to enter the equity market to make sizeable returns over the long term. A ULIP plan is a life insurance plan that comes with the added benefit of investing in the capital market. You can choose from insurance companies’ various plans to invest a percentage of your premium in different investment avenues.
Benefits offered by a ULIP
- You can invest in an array of asset classes. Moreover, ULIP provides flexibility to choose either the sum assured or the premium based on your needs. You can choose an appropriate plan that meets your risk-taking appetite and financial goal.
- Before you buy a ULIP plan, the policy’s complete tenure, the charge structure, value of an investment, and the expected return rate are all shared with you. Hence you know where your hard-earned money is going into.
- Partial withdrawal is yet another highlighting benefit of a ULIP plan. Suppose you need an emergency amount; you can opt for partial withdrawal (only after the first five years).
- Regular savings habit is promoted when you buy a ULIP policy as it helps build a corpus for future needs. On the other hand, there are regular return investments like monthly income schemesthat provide guaranteed returns as monthly income.
- Tax benefits – Themoney invested in ULIPs are exempt from tax under the Income Tax Act, 1961.
To get the most out of the ULIP insurance plan for higher returns, you need to follow these tips:
- Switch funds
- Make long term investments
- Choose the right plan
- Buy from a well-established insurer
Let us dig a little more into these tips.
Switch Funds
It refers to diversifying your investments across different asset classes. Switching funds play a crucial role in determining the risk and return in a portfolio. By spreading investment across different asset classes, you can create a diversified portfolio where one asset class’s profit can compensate for the loss from another. Thus, you reduce the overall risk of your investment.
Another benefit of investing in a ULIP plan in India is that it offers policyholders free switches between funds. You can switch between the available debt and equity fund options under your ULIP plan at any time during the policy tenure.
Within a financial year, you can make a fixed number of switches, without any additional charges. Free swapping of funds helps in the effective management of portfolio asset allocation. To know whether the chosen ULIP plan offers free switches, refer to your policy document.
Go for Long Term Investment Tenure
As you know, ULIP investment helps in wealth creation; it is imperative that you invest in a ULIP policy for a longer period. It has a lock-in period of five years. It means only after the completion of 5 years, you can make partial withdrawals from the ULIP policy. This lock-in period encourages investors to make regular premium payments and focus on wealth creation’s long-term perspective.
When you make a long-term investment in the ULIP plan, you allow your returns to maximize through compounded returns.
Choose the Right Plan
When it comes to gaining maximum returns from a ULIP plan, you must choose the right plan as per your financial goals. Whether it is for a specific financial goal or to get increased returns on a long-term basis, you must choose a ULIP plan as per your goals and risk tolerance. This is because ULIP plans to cater to the investor’s needs, and choosing the right plan can ensure you get the returns you expect.
A ULIP plan provides the option to invest in various equity and debt funds. Investment in equity funds helps provide high growth returns for a long-term basis, while the debt investment offers high protection to your wealth against market changes.
Buy from A Well-Established Insurer
Choosing a ULIP plan from a reputable and trusted insurer matters as it is the case of investment cum insurance. Also, you need to choose a ULIP plan that provides an adequate life insurance coverage amount. As the very purpose of a ULIP plans to meet your long-term financial needs, you must select the right ULIP plan that provides high life insurance coverage amount to your family in your absence.
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